Cyprus company formation is popular for one main reason: the effective tax on profits extracted as dividends is among the lowest in the EU. But the structure only holds up if it is set up correctly.
How the Tax Stack Works
The company pays 15% corporate tax on profits. Dividends paid to a Cyprus-resident non-dom shareholder are taxed at 0% Special Defence Contribution. There is no withholding tax on dividends paid to non-resident shareholders either. Capital gains on the disposal of shares are 0%. The result is a simple and predictable structure for profitable businesses and entrepreneurs.
The Management and Control Rule
A Cyprus company is only a Cyprus tax resident if it is managed and controlled from Cyprus. This is not a technicality. It means board meetings and strategic decisions happen in Cyprus, directors are genuinely based here, and the company has real substance including local banking and accounts maintained in Cyprus.
A Cyprus company where the sole director lives abroad and makes all decisions from there is a tax resident of wherever that director is, not Cyprus. This is the most common structural mistake and can result in significant back-tax liability in the owner's home country.
Combining Company and Non-Dom Status
Owning or working for a Cyprus company satisfies the connection requirement for Cyprus tax residency. Once you qualify as a Cyprus tax resident, you can claim non-dom status, giving 0% on dividends and interest for up to 17 years. A modest salary from your Cyprus company establishes the employment connection. Profits above that, extracted as dividends, fall under the non-dom exemption.
Ready to Set Up Your Cyprus Company?
Structure, residency, tax registration, and substance requirements all need to be right from day one. A strategy call covers your specific situation before anything is filed.
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